Personal Loan Agreement Template
A personal loan agreement, or promissory note, is a legally binding contract typically entered into between family members and friends. A loan agreement details the repayment of the loan and other important terms and conditions. A written loan agreement is important because it protects the lender. The lender can rely on the terms of the agreement to enforce repayment of the loan. What is in this Personal Loan Agreement Template?
- This personal loan agreement template was created to help you customize your own personal loan agreement.
- Drafting tips on simple loan agreements
- Details on how to get your Loan Agreement signed with ApproveMe
Why do you need a Personal Loan Agreement? A personal loan agreement is needed when money is loaned. Loans are also known as “notes.” The party lending the money is referred to as the lender, and the party borrowing the money is referred to as the borrower. A written personal loan agreement protects the lender if the borrower fails to pay or if the loan goes into default. A personal loan agreement should be in writing. This is for a few reasons:
- Repayment terms are clearly defined
- Parties are legally bound by the terms in the agreement
- Protects the lender and provides a legal remedy
When lending or borrowing money from friends and family, it can be challenging to enter into a written contract because it is hard to imagine the deal will fall through. A written agreement illustrates the parties’ agreement and provides the lender with assurances if the borrower fails to repay the loan. What is a Personal Loan Agreement? A personal loan agreement lays out the terms of the loan. The agreement memorializes the borrower’s promise to repay the loan. The lender delineates the borrower’s financial obligations, and the parties agree to a payment plan. There are many types of loan agreements running from auto loans to business loans. However, personal loans are more flexible. Loans can either be secured or unsecured. Personal loan agreements are generally unsecured. However, when a loan is secured, the borrower places a piece of owned property as collateral. Therefore, if the borrower cannot make their payments or defaults, the lender takes possession and ownership of the property. For example, it may not be sufficient just to describe the collateral as “my truck” or “my green truck.” Instead, it should be listed with the year, make, and other details like “ silver Mercedes SLK 250.” The more detailed, the better to eliminate the potential of any confusion in the future. If the loan is secured, it is crucial to clearly identify and describe the property. If the borrower wants to list their truck as collateral, it should be specific and detailed. Sometimes personal loan agreements will include an interest clause. This is implemented when the lender wishes the borrower to pay a certain percentage of interest on a monthly, annual, or another agreed-upon basis. Other Names for a personal loan agreement include:
- Promissory Note
- Loan Contract
- Simple Loan Agreement
- Personal Payment Agreement
- Installment Agreement
What Should be Included in a Personal Loan Agreement? Personal loan agreements are legally binding, so it is important to include certain elements to protect the parties to the agreement. Personal loan agreements will consist of unique clauses that may not be found in other contracts. Here are a few essential components of a simple personal loan agreement:
- Parties to the agreement (Lender/Borrower)
- Effective Date
- Loan Amount (Financial Obligation/Amount of Money)
- Payment Schedule, Installments, Payment Terms
- Payment Due Dates (monthly, weekly, etc.) and Late Fees or other Penalties
- Interest Rate (if applicable)
- Collateral/Security (if applicable)
- Dispute Resolution and Governing Law
- Contact Information for the Borrower and Lender
The loan agreement should list the total amount of the loan. It should also specify if the repayment schedule requires a monthly payment or weekly payment. Common Mistakes to Dodge when Drafting a Personal Loan Agreement A personal loan agreement should incorporate any and all terms of the parties’ agreement. Some common mistakes in personal loan agreements include:
- Leaving out the total loan amount
- Failing to incorporate an attainable and reasonable payment plan
- Omitting payment amounts, payment schedule, late payments, and late fees
- Missing all appropriate signatures
- Not reaching out to an attorney to obtain legal advice.
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Personal Loan Agreement
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Frequently Asked Questions
What is a Personal Loan Agreement?
Personal loans are used for different purposes such as home improvement, medical bills and emergencies. There are also some loans available for education expenses such as college tuition.
How do I write a Personal Loan Agreement?
Are personal loan agreements legal?
How do I draft a friendly personal loan contract?
- Be clear about your rights as a borrower
- Keep in mind that the lender will likely have their own set of rights as well
- Make sure that your loan contract includes an interest rate, repayment schedule, penalties for late payments, etc
- Take care to use language that is clear and concise
Does a personal loan agreement need to be notarized?
What is the difference between a loan agreement and a promissory note?
A promissory note is an agreement between two parties in which one party promises to repay another party an amount of money at some point in the future. It can be written as a check or as an IOU with some bank or financial institution.
how to write a loan agreement
The following are some important questions to consider when drafting a loan agreement:
- What is the purpose of the loan?
- Does the borrower have enough collateral to secure the loan?
- How long will it take for repayment?
- What interest rate does the borrower agree to pay?
how to write a loan agreement template
how to draw up a loan agreement between friends
what is a demand loan agreement
In these types of loans, there is an understanding that the borrower may not be able to repay all of their outstanding debt and thus they are not eligible for a full refund.
Demand loans are typically unsecured loans, which means there is no collateral that backs the loan. This means that if you default on your payment plan, you will lose your property and assets to cover your debt.
what is a loan agreement and why is it important
Loan agreements are important because they help protect both parties from future disputes and provide some peace of mind when making an investment in someone else's business.
The most important thing to remember when creating a loan agreement is to make it clear who will be responsible for paying back the loan. In this case, you would need to decide whether you want to be responsible or if you want your business partner to be.
how to make a personal loan agreement template
how to write a family loan agreement
The main purpose of this agreement is to protect both parties involved in the transaction. It outlines what each party will do with their money and property, as well as what rights they have over the other party.
how to write up a loan agreement
- The identity of both parties;
- The nature and purpose of the loan;
- The interest rate and repayment schedule;
- The amount to be borrowed and its value;
- Legal terminology such as "lien" or "mortgage".
how do i write a personal loan agreement
If you're looking for a way to structure your loan agreement, consider these steps:
1) Determine your goals.
2) Determine what you need from the agreement.
3) Write your terms and conditions.
4) Organize your document into sections and subsections.
How do I convert this personal loan agreement template word?
Then, customize the bracketed sections by adding your own content, and review the rest of the contract. Once it is to your liking, use the file saving options on your program or a file converting website to save it as your desired file type.
can you cancel a personal loan agreement?
how to draft a personal loan agreement
The agreement should be drafted with the following in mind:
- The amount of money you are borrowing and how long it will take to pay back.
- The interest rate.
- The repayment schedule.
how do i write a simple personal loan agreement
The key sections of a personal loan agreement are:
- The term, which gives both parties an idea of how long they will be borrowing and repaying money
- The principal amount, which is how much money you are borrowing
- The interest rate, which is how much you will be paying back in interest each month
- A description of what happens if you fail to pay back your loan on time
how to write a loan agreement with collateral
- Make sure that you have a clear understanding of what you want to borrow and what you will be lending out.
- Write your agreement in plain language, without jargon or legal terms.
- Keep your contract short and concise, while still including all necessary information in it.
how to write a simple loan agreement
how to write up a personal loan contract
Here are some things that you should keep in mind while writing a personal loan agreement:
- Ensure that all terms are clearly defined in your contract.
- Make sure that all clauses are written in plain language so there is no room for misinterpretation.
- Include an escape clause so that if something goes wrong, both parties can exit the contract without penalty.
how to write a contract for a personal loan
It's important to make sure that your contract is written in plain language so it's easy for anyone to understand without having any complications in understanding it. It's also important to keep track of all the changes made through time so that if something changes after signing your contract, you can go back and amend it accordingly.
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